In 2015, the IRS revealed a plan that would have given the option for non-profit organizations to collect certain personal information from individuals who made donations to their organizations. At the time, the IRS claimed that the plan was developed and proposed due to demand from non-profits. Shortly after the plan’s announcement, the IRS was besieged by push-back from non-profits, and industry bodies that feared the plan would dissuade benefactors from giving due to potential collection of personally identifiable information.
This belief that collection of personal data would scare off potential donations was probably entirely justified. After all, we live in a world where the IRS has grappled–with only limited success–against stolen identity return fraud (SIRF). Schemes of this type utilize illegally obtained personal information to fraudulently receive tax returns in the name of another taxpayer. Law enforcement routinely warns individuals and taxpayers against unnecessary disclosure of PII such as Social Security numbers. And yet, the IRS proposed a plan that appeared to have the potential to significantly expand the disclosure of this information. Do you have IRS tax concerns? Contact a Roseville tax attorney of NewPoint Law Group, LLP
What Was the Original Plan Proposed by the IRS?
As originally proposed, the IRS was exploring the possibility of requiring the collection of certain personal information, including Social Security numbers, for individuals who donated more than $250 to any non-profit group or organization. The proposed rule would have provided a means to satisfy Section 170(f)(8)(A) of the Internal Revenue Code, which states that a taxpayer claiming a deduction for a contribution of $250 or more must provide a contemporaneous written acknowledgement (CWA) issued by the organization. Section 170(f)(8)(D) administers an exemption to that reporting requirement when they file a “donee reporting form” in accord with regulations set forth by the Treasury Department.
The income tax regulations promulgated by the IRS did not include regulations required to implement the exception provided in Section 170(f)(8)(D). Still, some taxpayers under examination had nevertheless attempted to invoke the exception to cure CWA noncompliance through the filing of an Amended Form 990. Other organizations had apparently filed Form 990 despite the IRS’s determination that this was an invalid reporting method, and did not give rise to the exception provided under Section170(f)(8)(D).
While the IRS plan was intended to correct the unavailability of this reporting method in the tax code, the proposed plan would have required donor information to be sent to the IRS. Thus, the IRS would have been required to store and make accessible personally identifiable donor information. This is in contrast to the traditional method of obtaining CWA, which is not sent to the IRS. Critics of the plan feared that placing additional PII in the stewardship of the IRS was, at best, misguided due to the IRS’s ability to safeguard information in the past.
Push-back by Non-Profits Led the IRS to Scrap This Plan
An array of non-profits and industry bodies opposed the plan and encouraged others to submit comments critical of the IRS plan. The National Council of Nonprofits opposed the plan on both procedural and substantive grounds. The organization asserted that no meaningful cost-benefit analysis was performed, no eliciting of views from affected parties was conducted, and other procedural concerns. As to substantive concerns the organization believed that the proposal would provide scam artists, “new tools to illicitly access Social Security numbers, engage in identity theft, and commit fraud.” They then stated that the proposed rule had already had a chilling effect on charitable giving to the organizations. A group of 215 non-profit organizations also issued a joint statement against the plan.Approximately 38,000 comments regarding the plan were received by the December 16th open comment period deadline.
Facing backlash against a plan that was intended to give donors a means to prove their donations, public perceptions of the plan–created by past scandals and a toxic political climate–caused a vehemently negative public reaction. As such, the IRS withdrew the plan on January 8, 2016. So, for the time being, the status quo will remain regarding reports of charitable donations and CWAs.
Experienced Sacramento Tax Lawyers Provide Guidance for Non-Profit Companies and Organizations
The experienced attorneys of the NewPoint Law group offers numerous services for non-profit organizations and their donors. To schedule a confidential legal consultation with a Sacramento tax attorney, call 800-358-0305 or contact us online today.
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